New fund may affect rural prices

The new fund being established by listed rural property company
PrimeAg
and Australia’s Future Fund is being seen as a potential source of value distortion in the rural property market.

The fund, which is targeting $600 million in property under management, is mandated to invest in prime Australian cropping properties and water entitlements.

However, senior rural agents say that if the fund sticks to its criteria of only investment-grade property, it could have to pay above the market rate because of the shortage of such stock.

“I think if they are wanting to choose carefully and get the prime cropping country, it will be very hard to find," said Landmark Harcourt NSW managing director Phil Rourke.

“If they want to buy those sorts of assets they might push the price up a bit. Going into the market with even $300 million will firm the prices up."

So far the rumours are swirling that PrimeAg, which will manage the fund and collect fees for acquisitions, is eyeing the big-name properties such as the Marchant family’s Carrington Farms in Queensland.

PrimeAg’s new chief executive,
Peter Corish,
has been mum on what specific properties and what geographies the new fund will focus on, but there is strong language being used to indicate that discounts are being sought by the fund.

“The Australian agricultural market is currently presenting a number of large-scale rural property cropping aggregations," Mr Corish said.

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“Entering the Australian rural cropping property and water entitlement market in 2011 provides a rare ‘value’ opportunity." The prospectus for PrimeAg’s new fund is also littered with such indications.

“[The fund] aims to acquire premium assets at attractive entry prices" and “enter the market at attractive ­valuations", he said.

For valuers such as m3property’s Shaun Hendy the fund might actually provide a balanced outcome. Transactions will increase, which will help stimulate activity, but prices will remain consistent.

“I don’t think the fund’s plan will distort values," Mr Hendy said.

“There is a lot to select from – there are potentially a few assets for acquisition that are well over the $200 million mark that have been on the market for quite some time."

Currently PrimeAg has properties sprawling from central Queensland through to northern NSW. Herron Todd White has recorded drops in value for broadacre properties in both southern Queensland and northern NSW.

Ironically PrimeAg itself is planning to sell its “Kurrajong Hills" aggregation east of Moree in northern NSW, but after a 2009 valuation of $6.24 million it is expected that the property will only make $5.5 million when it goes to auction.

Mr Hendy expects the best thing PrimeAg’s new fund will do is fill a void where institutional buyers are desperately needed in Australia.

“There are some fairly large properties out there beyond the realm of the family farm and we need institutional investment to give that depth and liquidity the market needs," Mr Hendy said.